How Chicago’s Largest Pension May Run Out Of Cash In As Little As 4 Years

Chicago’s pension funds, along with several other large public pensions around the country, are in serious trouble (we recently discussed the destruction awaiting our financial markets here: “Are Collapsing Pensions “About To Bring Hell To America”?“). 

The problem is that the pending doom surrounding these massive public pension obligations often get clouded over by complicated actuarial math with a plan’s funded status heavily influenced by discount rates applied to future liability streams. 

Take Chicago’s largest pension fund, the Municipal Employees Annuity and Benefit Fund of Chicago (MEABF), as an example.  Most people focus on a funds ‘net funded status’, which for the MEABF is a paltry 20.3%.  But the problem with focusing on ‘funded status’ is that it can be easily manipulated by pension administrators who get to simply pick the rate at which they discount future liabilities out of thin air.


So, rather than lend any credence to some made up pension math, we prefer to focus on actual pension cash flows which can’t be manipulated quite so easily. 

And a quick look at MEABF’s cash flows quickly reveals the ponzi-ish nature of the fund.  In both 2015 and 2014, the fund didn’t even come close to generating enough cash flow from investment returns and contributions to cover it’s $800mm in annual benefit payments…which basically means they’re slowing liquidating assets to pay out liabilities.


Of course, like all ponzi schemes, liquidating assets to pay current claims can only go on for so long before you simply run out of assets. 

So we decided to take a look at when Chicago’s largest pension fund would likely run out of money.

On the expense side, annual benefit payments are currently just over $800 million and are growing at a fairly consistent pace due to an increasing number of retirees and inflation adjustments guaranteed to workers.  Assuming payouts continue to grow at the same pace observed over the past 15 years, the fund will be making annual cash payments to retirees of around $1.3 billion by 2023.


Investment returns, on the other hand, are much more volatile but have averaged 5.5% over the past 15 years.  That said, the fund took big hits in 2002 (-9.3%) and 2008 (-27.1%) following the dotcom and housing bubble crashes. 

But, just to keep it simple, lets assume that today’s market is not a massive fed-induced bubble and that the MEABF is able to produce consistent 5.5% (their 15-year average) returns every year in perpetuity.  Even then, the fund will only generate roughly $500mm per year in income compared to benefit payments growing to $1.3 billion…see the problem?


Which, of course, means that the fund has likely just entered a period of perpetual cash outflows which will not stop until either (i) the city decides to cut back retiree payments or (ii) the fund runs out of money.


And, putting it all together, even if Chicago’s largest pension generates consistent positive returns for the foreseeable future, it will literally run out of cash in roughly 6 years.


And while we hate to be pessimistic, lets just take a look at what happens if, by some small chance, today’s market gets exposed as a massive bubble and we have another big correction in 2018.

Such a correction would force the fund to liquidate over $1.5 billion in assets in 2018 alone….


….and the system would run out of cash completely within 4 years.


The risk associated with America’s pension ponzi schemes have largely been overlooked by investors to date because so long as they can meet annual benefit payments then plan administrators can just continue to ‘kick the can down the road’ and pretend that nothing is wrong.   

Of course, that strategy ceases to work when the pensions actually run out of cash…which could happen sooner than you think…and when it does, America’s retirees will suddenly find themselves about $5 trillion poorer than they thought they were.

via Tyler Durden

A City in Ohio Treats Seeking Medical Help When Suffering an Overdose as a Criminal “Public Inconvenience”

The American Civil Liberties Union of Ohio is peeved with the police department of Washington Court House, Ohio, for a stupidly punitive application of the state’s so-called “inducing panic” laws to pile legal injury on personal crisis against people suffering drug overdoses.

As per a letter the ACLU Ohio sent this week to the city’s “law director,” the city has “charged at least 12 people who suffered an overdose with a first degree misdemeanor under the Inducing Panic law” if they actually sought emergency medical help while overdosing.

That law criminalizes causing “serious public inconvenience and alarm.”

The ACLU points out such a practice horribly disincentivizes people seeking medical help when overdosing.

It’s not only terribly bad policy, if you at all care about people dying of drug overdoses, it’s actually against the meaning of the law, which ACLU insists does not cover police or other city officials summoned to perform their duties.

According to a 1992 court case, State v. Cordell, that the ACLU quotes, it can’t be the case that “every time a police officer respond[ed] to anything other than a routine traffic investigation a potential defendant could be charged with inducing panic.”

Alas, policies designed to ensure that opioid deaths that could be avoided are not avoided are all too common in the U.S., as see the lack of across the board national over the counter availability of naloxone.

Jacob Sullum from May 2016 on “‘Opioid Epidemic’ Myths.”

Hat tip: Human Rights Watch

from Hit & Run

McCaskill To Oppose Gorsuch, Virtually Assuring Use Of “Nuclear Option”

Senator Claire McCaskill said she will join the Democrats attempted filibuster of Supreme Court nominee Neil Gorsuch and will not vote for him, making it almost certain that Republicans will have to trigger the “nuclear option” to confirm President Trump’s first Supreme Court nominee.

The Missouri Democrat announced Friday in a post on Medium, faulting the nominee for “a stunning lack of humanity.”

“While I have come to the conclusion that I can’t support Neil Gorsuch for the Supreme Court ?- ?and will vote no on the procedural vote and his confirmation? – ?I remain very worried about our polarized politics and what the future will bring, since I’m certain we will have a Senate rule change that will usher in more extreme judges in the future,” McCaskill wrote in a post on Medium.

She said the nomination of Gorsuch goes against the grain of Trump’s promise to help working-class Americans because he is “a judge who can’t even see them.” McCaskill also raised concerns about Gorsuch’s refusal during his confirmation hearing to say how he viewed the constitutionality of campaign fundraising regulations, which were limited by the landmark case Citizens United v. Federal Election Commission in 2010.

“I cannot support Judge Gorsuch because a study of his opinions reveal a rigid ideology that always puts the little guy under the boot of corporations,” she said adding “I cannot and will not support a nominee that allows dark and dirty anonymous money to continue to flood unchecked into our elections.”

What makes McCaskill’s opposition unique is that she is the first Democrat facing reelection next year in a state President Trump carried by double digits to come out against Gorsuch, a move which will likely force other “on the fence” Democrats to follow in her footsteps.

The political press is divided over what her no vote means: according to Axios: “Gorsuch just got the last “no” it needed so the Democrats can meet the vote threshold to filibuster his nomination. Republicans will now have to get rid of the 60-vote filibuster threshold for judges, or allow Gorsuch’s nomination to fail.”

A less definitive conclusion comes from the Hill, according to which her “no” vote shrinks the pool of Democrats who have undecided or unclear positions on Gorsuch to nine. Gorsuch’s nomination needs the backing of eight Democrats or Independents, along with all 52 Republicans, to break a filibuster.

Only two Democrats have so far said they will vote to end a filibuster of Gorsuch and support his final confirmation, according to The Hill’s Whip List. Both of them, Sens. Joe Manchin (W.Va.) and Heidi Heitkamp (N.D.), represent states Trump won overwhelmingly in November.

Meanwhile, Senate Leader Mitch McConnell has vowed that Gorsuch will be confirmed and has told colleagues to expect a vote to change the rules to lower the threshold for ending a filibuster to a simple majority, i.e. the “nuclear option”.

As The Hill adds, to avoid a showdown over the rules, it now becomes crucial for Gorsuch to pick up the support of the two remaining undecided Democrats who face reelection next year in strongly pro-Trump states: Sen. Jon Tester (Mont.) and Sen. Joe Donnelly (Ind.).

Gorsuch would likely also need the support of senior Democrats such as Sen. Dianne Feinstein (Calif.), the ranking member on the Judiciary Committee, and Sen. Patrick Leahy (Vt.), who might be concerned about preserving their power to filibuster for the next vacancy on the court.


Other Democrats up in the air are centrist Sens. Mark Warner (Va.) and Chris Coons (Del.), along with Independent Sen. Angus King (Maine), who praised Gorsuch earlier this year as “exceedingly independent.”

Assuming Axios’ whip list is the correct one, and McCaskill’s vote was the tiebreaker, forcing the “nuclear option”, the likely outcome is to make the already deep split between Republicans and Democrats even more polarized, further complicating the passage of any future Trump legislative proposals.

via Tyler Durden

Do The Roots Of Rising Inequality Go All The Way Back To The 1980s?

Authored by Charles Hugh-Smith via OfTwoMinds blog,

Unless we change the fundamental structure of the economy so that actually producing goods and services and hiring people is more profitable than playing financial games with phantom assets, the end-game of financialization is financial collapse.

I presented this chart of rising wealth inequality a number of times over the past year. Do you notice something peculiar about the inflection points in the 1980s?

Correspondent W.S. noted that the inflection point for the top .1% (late 1970s) preceded the inflection point of the bottom 90% (around 1986): both increased their share of household wealth from 1978 to 1986, and then the share of the top .1% took off, essentially tripling from 8% to over 22%, while the share of the bottom fell precipitously from 36% to 23%.

(Note that the data stops at 2012; if we extend the trends to the present, the lines have certainly crossed and the share of the .1% now exceeds that of the bottom 90%.)

So what happened between 1978 and 1986? The first phase of the financialization of the U.S. economy. What is financialization? In a financialized economy, speculating with highly leveraged debt and exotic financial instruments is far more profitable than producing goods and services.

Financialization hollows out the productive assets of an economy by incentivizing leverage, debt, opacity, speculation, financial fraud, collusion and the perfection of crony capitalism, i.e. financial Elites' ownership of the government's regulatory and legislative bodies.

Here is another less pungent description via Wikipedia: "Financial leverage overrides capital (equity) and financial markets dominate traditional industrial economy and agricultural economics."

Here is my more formal definition:

Financialization is the mass commodification of debt and debt-based financial instruments collaterized by previously low-risk assets, a pyramiding of risk and speculative gains that is only possible in a massive expansion of low-cost credit and leverage.

Another way to describe the same dynamics is: financialization results when leverage and information asymmetry replace innovation and productive investment as the source of wealth creation.

I describe the dynamics in What's the Primary Cause of Wealth Inequality? Financialization (March 24, 2014)

Correspondent W.S. submitted commentary and references this 2005 book Financialization and the World Economy:

In the US "total credit market debt divided by GDP was about 1.5 from 1961 to 1981. It accelerated rapidly in the decade of the 1980s – from 1.6 in 1981 to 2.3 in 1989 – as the federal budget deficit soared, hostile takeovers and leveraged buyouts loaded corporations with debt, and household borrowing increased. Corporate and household borrowing raised indebtedness further in the 1990s; by 2001 the debt to GDP ratio was 2.8, almost double the ratio in the Golden Age. Moreover, average real interest rates have been much higher in the neoliberal era than they were in the three decades that preceeded it.

W.S. Also referenced FINANCIALIZATION OF THE ECONOMY and added this commentary:

While “bloated” conglomerates were linked by some to the sluggish performance of the American economy in the 1970s, for corporate raiders they presented a get rich quick opportunity via the “market for corporate control” (Manne 1965). Outsiders could buy the firm from its existing shareholders, fire its managers, and sell off the parts for a quick profit.

After the election of Ronald Reagan in 1980, this became possible on a grand scale due to relaxed antitrust guidelines, changes in state antitakeover laws, and financial innovations that enabled raiders to get relatively short-term financing on a large scale (Davis & Stout 1992). Within a decade, nearly one-third of the Fortune 500 largest industrial firms had been acquired or merged, often resulting in spinoffs of unrelated parts, and by 1990 American corporations were far less diversified than they had been a decade before (Davis et al 1994).

The other thing that happened in the mid-1980s was computer technology became cheap enough and powerful enough to start replacing human labor on a wider scale. Spreadsheets such as Excel became accessible to small business, and the desktop publishing combo of the Apple Macintosh and laserprinters revolutionized the cost structure of marketing.

The rise of the Internet (coupled with cheap memory and processing power) further fueled the productive expansion of digital technologies. As I describe in my book Get a Job, Build a Real Career and Defy a Bewildering Economy, these tools– which are now ubiquitous and inexpensive–enable one person today to equal the output of what once took four people to produce in the late 1980s.

In effect, labor entered an era of dynamic over-supply just as healthcare costs began to rise, making it more costly to hire workers. Some skills and trades remain scarce and thus well-paid, but as a generalization it became cheaper and more efficient to replace increasingly expensive human labor with increasingly inexpensive and powerful software and digital tools.

Unless we change the fundamental structure of the economy so that actually producing goods and services and maximizing opportunities for people is more profitable than playing financial games with phantom assets, the end-game of financialization is financial collapse.

Recent podcasts/video programs:

Deep State Fractures Under Populist Revolution (TruNews, 37:27)

via Tyler Durden

Trader Warns Of Week Ahead Event Risk: “If You Thought This Week Was Bad…”

It was a week when the world was supposed to come to an end, notes Bloomberg's Richard Breslow, but then it didn’t…

 I can’t say I’m disappointed, but it sounds like a lot of people are. Curious. Equities, the dollar and bond yields were put to the test on the failure of Congress to pass new health care legislation. All three survived the challenge. The Republicans have vowed to try again.



Article 50 was triggered in the U.K. and the market, with remarkable maturity, took it with calm. It’s going to be a long, perhaps ugly slog, with a lot of noise and posturing for the foreseeable future.


Very soft German and European-wide inflation numbers helped further deflate any expectations of near-term ECB hawkishness. Euribor futures moved steadily higher over the course of the week. Thursday’s release of the ECB minutes from their March “hawkish” meeting takes on added interest amid comments that the market misconstrued the message.

But Breslow warns, next week’s big events include a meeting between the Chinese and American presidents. Don’t underestimate the importance of it or the market interest it will garner. And the U.S. non-farm payroll report, where yet another good set of numbers has been penciled in. Perhaps adding fuel to the upbeat and hawkish Fed speeches of this past week.

Here's what Breslow sees as most critical next week…

  • On Monday, the Bank of Canada releases its business outlook survey. The last report portrayed investment and hiring outlook as far more bullish than the caution consistently expressed by Governor Stephen Poloz. With the currency in a very tight range, we could see a breakout in either direction depending on the results.
  • The RBA will announce its latest rate decision on Tuesday. Nothing expected from this meeting, but speculation keeps ebbing and flowing on their next move. At their last meeting there were some incrementally hawkish tweaks to the language. Their comments on labor conditions and housing prices will be key. The Australian dollar remains sneakily bid.
  • Wednesday’s FOMC minutes come amid a synchronized chorus of upbeat speeches by Fed speakers. If the minutes are hawkish, reinforcing rather than showing recent comments as evolutionary, the short-end of the Treasury curve will have to take notice.
  • ADP releases its monthly employment report. Last month it gave an accurate hint that NFP was going to be a beat. With 180k forecast, it will influence all expectations for Friday, no matter how many people claim it won’t.
  • Thursday looks like a big day. Chinese President Xi Jinping visits U.S. President Donald Trump’s southern White House. Worryingly, and sadly not unexpectedly, Trump warned that these talks could be “very difficult” Perhaps by lowering the bar sufficiently there’s a greater chance of the meeting being a success. The Chinese, for their part, refused to take the bait and have expressed optimism for a constructive exchange. It’s a big event and there are many issues up for debate. Join the rest of the world in watching this with great interest.
  • The ECB minutes from their March meeting will move the currency and bond markets. Were they hawkish? Was it all a misunderstanding? Have subsequent inflation reports rendered them dated? The release has a good chance of stirring up a fair amount of Sturm und Drang. Perhaps appropriately, as ECB President Mario Draghi will be speaking at Goethe University shortly after.
  • And then on Friday, there’s non-farm payrolls. There’s little in the economist median forecasts to suggest an expectation of some payback from last month’s strong report. Although, I’d note that the dispersion of predictions looks wider than usual. Once again, focus on wages.

Perhaps that uncertainy explains the divergence below as traders push into protection…

via Tyler Durden

The Big Contraction – An Interview With James Howard Kunstler

Authored by Erico Matias Tavares via Sinclair & Co.,

James Howard Kunstler is an American author, social critic, public speaker and blogger. His thinking gained prominence after the publication of his book The Geography of Nowhere (1994), a history of American suburbia and urban development “because [he] believe[s] a lot of people share [his] feelings about the tragic landscape of highway strips, parking lots, housing tracts, mega-malls, junked cities and ravaged countryside that makes up the everyday environment where most Americans live and work.” This was followed by The Long Emergency (2005) and most recently Too Much Magic (2012), both non-fictional books. Starting with World Made by Hand in 2008, he has written a series of science fiction novels about such a culture in the future.


Mr. Kunstler has lectured at Harvard, Yale, Columbia, Princeton, Dartmouth, Cornell, MIT, RPI, the University of Virginia and many other colleges, and he has appeared before many professional organizations such as the AIA, the APA and the National Trust for Historic Preservation.

E Tavares: Thank you for being with us today. You have been writing about worsening societal issues, what you call “entropy in action”, for many years. Broadly speaking, why do you think the US is in so much trouble?

JH Kunstler: We’ve been sowing the seeds for our predicament since the end of World War II. You might even call this process “The Victory Disease.” In practical terms it represents sets of poor decisions with accelerating bad consequences. For instance, the collective decision to suburbanize the nation. This was not a conspiracy. It was consistent with my new theory of history, which is Things happen because they seem like a good idea at the time.

In 1952 we had plenty of oil and the ability to make a lot of cars, which were fun, fun, fun! And we turned our war production expertise into the mass production of single family houses built on cheap land outside the cities. But the result now is that we’re stuck in a living arrangement with no future, the greatest misallocation of resources in the history of the world.

Another bad choice was to offshore most of our industry. Seemed like a good idea at the time; now you have a citizenry broadly impoverished, immiserated, and politically inflamed.

Of course, one must also consider the possibility that industrial society was a historic interlude with a beginning, middle, and end, and that we are closer to the end of the story than the middle. It was, after all, a pure product of the fossil fuel bonanza, which is also coming to an end (with no plausible replacement in view.) I don’t view all this as the end of the world, or of civilization, per se, but we’re certainly in for a big re-set of the terms for remaining civilized.

I’ve tried to outline where this is all going in my four-book series of the “World Made By Hand” novels, set in the near future. If we’re lucky, we can fall back to sets of less complex social and economic arrangements, but it’s unclear whether we will land back in something like the mid-nineteenth century, or go full-bore medieval, or worse. One thing we can be sure of: the situation we face is one of comprehensive discontinuity — a lot of things just stop, beginning with financial arrangements and long-distance supply lines of resources and finished goods.

Then it depends whether we can respond by reorganizing life locally in this nation at a finer scale — if it even remains a unified nation. Anyway, implicit in this kind of discontinuity is the possibility for disorder. We don’t know how that will go, and how we come through it depends on the degree of disorder.

ET: Fair points, but one remarkable feature of Western civilization has been its resilience. In less than a decade the US has been able not only to reverse the historical decline in domestic crude oil production but also come up with natural gas as an expansive new source of energy. It now exports both of these commodities. Ditto for food production, where it can afford the luxury of using 40% of its corn production as car fuel. Doesn’t all this contradict what you had postulated in “The Long Emergency” back in 2005?

JHK: We flatter ourselves a bit to harp on our “resilience.” More realistically, history is an emergent process and societies are emergent phenomena which necessarily respond to the circumstances that reality presents. Sh*t happens and sh*t unhappens and then re-happens differently. The oil situation is grossly misunderstood by the public, including you, as implicit in the question you have just put to me.

We are not exporting any meaningful quantities of oil or natural gas. In fact we’re still importing nearly 8 million barrels of oil a day. The shale oil “miracle” has largely been a manifestation of low interest lending into an industry that can’t pay back its loans, even as it produces like mad at a loss. You can look at it as a simple equation: oil over $75 a barrel crushes economies and oil under $75 a barrel crushes oil companies. To date, American oil companies have not made a red cent off the shale oil “miracle.”

It seemed like a good idea at the time, and it kept a lot of people busy for a while, but it was essentially a stunt that is not paying for itself and it has a short horizon. The public only sees lower gasoline prices at the pump; they have no idea how low prices are wrecking the oil industry. The result of all this will be an incrementally smaller global oil industry and fewer customers for its products — without anything to replace it.

The crux of the matter is the falling Energy Return on Investment (EROI). In the 1950s you got 100 barrels of Texas crude for every equivalent barrel of energy you sunk into the project. That’s 100 to 1. Shale oil gives you about 5 to 1. Tar sands are a little worse. The worldwide average EROI these days is 17 to 1 (including Arabian oil, deep water, etc.). We can’t run all the systems of our “advanced” society at those ratios, and that is why we have been running up the debt so dramatically — borrowing from the future to cover the cost of living as we do.

And that is exactly why we are heading into financial clusterf*ck as it becomes increasingly evident that the debt will never be paid back. This will wreck the banking system, and that will force everything else to change, including the dynamic of how we produce and distribute food. So, no, none of what I am saying here contradicts my 2005 book, “The Long Emergency”, though it has played out with some strange twists in the story.

ET: Another theme you talked about in that book is that in order to cope with looming energy and food crises Americans would have to eventually live in smaller-scale, localized and semi-agrarian communities. All part of a process you call the Big Contraction.

However, a McKinsey Global Institute research paper from 2012 predicts quite the opposite for most of the world in the coming years, as depicted in the graph above. Indeed, growing urbanization has been one of the major trends so far in the 21st century. What do they see here that you don’t?

JHK: McKinsey’s prescience may be on a level with what the CIA failed to see in the 1990 collapse of the Soviet Union. Everybody and his mother is predicting that our cities will only get bigger and bigger. I will impudently state that they are all mistaken. Our cities have attained a scale which cannot be sustained, given the capital and resource scarcities we face immediately ahead. This is what they don’t see: the fragility of the fossil fuel supply system (and everything that depends on it) and its relation to money and capital formation.

McKinsey and its compadres are dumb extrapolationists — they look at what’s been going on and they say we’ll only get more of it in a bigger package. These people are the “intellectual-yet-idiots” that Nassim Nicholas Taleb identifies so shrewdly.

For one thing, the successful places in the years ahead will be those places with a meaningful relationship to food production. I believe the action in US will shift to the now-derelict small towns and small cities, especially places around the extensive inland waterway system and the Great Lakes. The giant metroplexes, so-called, will contract, probably in a messy way that includes great losses of notional real estate value and battles between various ethnic groups as to who gets to inhabit the districts with remaining value (e.g. close to the waterfront).

This contraction has already occurred in many cities of the heartland — Detroit, St. Louis, Milwaukee, Cleveland, etc. In contrast, booming New York, Boston, San Francisco and Dallas are purely products of the financialization of economy, and disorder in the banking system will hit them very hard. The suburbs around these places are next to go. Their destiny is either slums, salvage, or ruins.

ET: One aspect that we find fascinatingly provocative in your work is your description of modern urban landscapes, and how instead of being welcoming social spaces they now cause anxiety, even repulsion. What have modern architects missed in relation to their predecessors? Is that in any way related to the cultural revolution of the 1960s, which profoundly impacted much of the Western world?

JHK: The architects are a dysfunctional sub-culture in themselves. Suffice it to say they are hand-maidens of the corporate racketeers and victims of a particularly virulent form of techno-narcissism that infects our culture of wishful thinking and solipsism.

But the condition of the landscape is a product of much more than architects. The suburban project comes to us courtesy of banking, the automobile and trucking interests, national chain retail, municipal planning officials (who know nothing of urban design), traffic engineers, and many other ultra-specialists who populate this matrix of racketeering. They have produced an everyday environment that is positively punishing to human neurology. It makes people sad, lonely, confused, angry, anxious, and despondent. They didn’t do it on purpose. It was just the blowback from their methods, customs, and practices. The zoning ordinances crafted and refined over a hundred years now mandate a suburban sprawl outcome in most American places.

Look, life is tragic. As I began to say in this interview, societies can make some pretty poor choices. Our choice to live in a drive-in utopia was a terrible blunder and now we’re stuck with the consequences. Notice that the outcome on the European landscape is still rather different. They will have plenty of problems in The Long Emergency, but at least they did not destroy their old city centres, and when the time for contraction comes, as it will, they have something of great value to contract back into.

ET: You talk about a “population overshoot” relating to demographic explosions in Africa and the Middle East that you claim cannot be sustained by the existing resources of those regions. Why do you say that?

JHK: Much of this region is desert wasteland. The populations of the “nations” in it (many boundaries drawn arbitrarily by the victors of World War One) have exploded numerically. The region can’t feed nor water itself. Nor employ its exploded population. It is purely a product of fossil fuel pseudo-prosperity. It went this way for less than a century and then it will be over.

For the moment these populations (especially the young men) are exploding in political violence. Categorically, “normal” life will not continue as it has. We’re already seeing the gross disintegration of whole societies. It will accelerate.

ET: The graph above shows youth employment (15-24 year olds) per quarter as a percentage of the same youth group for selected groups and countries. A contraction is quite evident here, especially post the 2008 financial crisis. Prospects certainly do not seem as rosy for them compared to prior generations. Do you agree?

JHK: Some things are very plainly self-evident. The relationships between energy flows, energy costs, capital formation, and productive enterprise are unravelling, and with that the economic roles for people to play, i.e. jobs.

The result is no further economic “growth” or expansion of productive activities. The “action” has shifted to financial racketeering which, being wholly dishonest and non-productive, will only go on so long. The dynamic here is already leading to political turmoil, which will get worse. It may end up as historically earthshaking as the Fall of the Roman Empire.

I’ve predicted that Japan will be the first advanced nation to “go medieval.” They had a lovely culture of high artistry in the pre-modern Edo period. They’ll be lucky to get back to something like that. (I think they miss it, and that Modernity has been a great Punishment upon them.)

ET: One region of the developed world that certainly seems primed for a Big Contraction is Europe. While it remains a food powerhouse, its domestic fossil fuel reserves are dwindling fast. Populations in many countries are rapidly getting old and there aren’t enough babies to pay for burgeoning welfare costs. And to add even more anxiety, those massive migration flows from Africa and the Middle East will likely end up there, causing further social strains, possibly even conflict. What do you make of all this?

JHK: It’s pretty clear that Europe is in for very hard times. They’ve kept the whole thing going on the EU / ECB debt game, and for a while they attempted to compensate for their demographic problems with immigration, but that, too, has gotten badly out-of-hand. I would go so far to say that Western Europe will try to expel its nonconforming Muslim population in the years ahead. It will be like Spain’s expulsion of the Moors all over again, only more widespread and bloodier.

That said, Modernity as we’ve known it is over in Europe. No more fossil fuels and no more New World to export surplus populations to. It’s an ugly set-up. They’ve been to that Dark Age movie before.

ET: Based on our own experience we very much sympathize with one way, perhaps the only way, you propose for the West to cope with all these serious challenges. And that is the revival of our small communities, centered on Nature and agriculture, as depicted in the picture above. How do you see this process unfolding? It seems that many people are still not thinking in that direction. 

JHK: As I said, societies are emergent phenomena. We have resisted the call to deliberately make changes because it was easier to keep the rackets running so the changes will be made for us, so to speak. Reality has mandates of its own. When it’s no longer easier to behave recklessly, we’ll behave differently.

Look, in 1917 it’s unlikely anyone would have predicted the near death of America’s small towns and inner cities. These days, few see the reversal of that at hand. Industrial agriculture is just one of the rackets out there that will not be able to continue. For one thing, that method of agriculture requires massive debt financing, and on that basis alone it will fail, not to mention the whole issue of fossil fuel based fertilizers and herbicides and the decline of soil quality.

When industrial agriculture wobbles, the system will have to revert to smaller farms that work differently and serve more local regional customers. I believe that will prompt the revival of our small town economies. The cities' unhappy fate will be to cope with the extinguished office-based rackets of our time: Too Big To Fail banking, insurance, real estate, medicine, social services, etc.

ET: Lastly, why should we trust a guy with a moustache who makes his own clothes and bakes his own cookies?

JHK: Well, that was just a gag, after all. I cook pretty well, but i don’t make my own clothes. I shaved off the moustache last fall.

Nobody has to "trust me.” I’m just putting it “out there” for your consideration. Then we’ll stand by to see how it really shakes out.

ET: Thank you very much for your insights. We very much recommend your books to anyone wanting to deepen their understanding of what we just discussed. All the best

JHK: Thank you.

via Tyler Durden

Intel Official Behind “Unmasking” Of Trump Associates Is “Very Senior, Very Well Known”

Day after day, various media outlets, well really mostly the NYT and WaPo, have delivered Trump-administration-incriminating, Russia-link-related tape bombs sourced via leaks (in the hope of keeping the narrative alive and "resisting."). It now turns out, according to FXN report, that the US official who "unmasked" the names of multiple private citizens affiliated with the Trump team is someone "very well known, very high up, very senior in the intelligence world."

As Malia Zimmerman and Adam Housley report, intelligence and House sources with direct knowledge of the disclosure of classified names (yes, yet another "unnamed source") said that House Intelligence Committee Chairman Devin Nunes, now knows who is responsible – and that person is not in the FBI (i.e. it is not James Comey)

Housley said his sources were motivated to come forward by a New York Times report yesterday which reportedly outed two people who helped Nunes access information during a meeting in the Old Executive Office Building. However, Housley’s sources claim the two people who helped Nunes "navigate" to the information were not his sources. In fact, Nunes had been aware of the information since January (long before Trump's 'wiretap' tweet) but had been unable to view the documents themselves because of "stonewalling" by the agencies in question.

For a private citizen to be “unmasked,” or named, in an intelligence report is extremely rare. Typically, the American is a suspect in a crime, is in danger or has to be named to explain the context of the report.

“The main issue in this case, is not only the unmasking of these names of private citizens, but the spreading of these names for political purposes that have nothing to do with national security or an investigation into Russia’s interference in the U.S. election,” a congressional source close to the investigation told Fox News.

The White House, meanwhile, is urging Nunes and his colleagues to keep pursuing what improper surveillance and leaks may have occurred before Trump took office. They’ve been emboldened in the wake of March 2 comments from former Obama administration official Evelyn Farkas, who on MSNBC suggested her former colleagues tried to gather material on Trump team contacts with Russia.

White House Press Secretary Sean Spicer said Friday her comments and other reports raise “serious” concerns about whether there was an “organized and widespread effort by the Obama administration to use and leak highly sensitive intelligence information for political purposes.”

“Dr. Farkas’ admissions alone are devastating,” he said.

Clearly this confirms what Evelyn Farakas said, accidentally implicated the Obama White House in the surveillance of Trump's campaign staff:

The Trump folks, if they found out how we knew what we knew about the Trump staff dealing with Russians, that they would try to compromise those sources and methods, meaning we would not longer have access to that intelligence.

Furthermore, Farkas effectively corroborated a New York Times article from early March which cited "Former American officials" as their anonymous source regarding efforts to leak this surveillance on the Trump team to Democrats across Washington DC.

* * *

In addition, citizens affiliated with Trump’s team who were unmasked were not associated with any intelligence about Russia or other foreign intelligence, sources confirmed. The initial unmasking led to other surveillance, which led to other private citizens being wrongly unmasked, sources said.

"Unmasking is not unprecedented, but unmasking for political purposes … specifically of Trump transition team members … is highly suspect and questionable,” according to an intelligence source. “Opposition by some in the intelligence agencies who were very connected to the Obama and Clinton teams was strong. After Trump was elected, they decided they were going to ruin his presidency by picking them off one by one."

* * *

So if the source isn't Comey, has anyone seen Jim Clapper recently? The answer should emerge soon, meanwhile the ridiculous game with very high stakes of spy vs spy, or in this case source vs source, continues.

The report summarized below in video format:

via Tyler Durden

Tillerson Blasts Russia For “Ukraine Aggression” As Germany Slams Trump’s “Unrealistic” NATO Demands

Secretary of State Rex Tillerson tried to reassure America’s nervous European counterparts over Washington’s commitment to NATO on Friday but it didn’t quite work out as expected when he pressed them again to spend more on defense, triggering a sharp rebuke from Germany.

“As President Trump has made clear, it is no longer sustainable for the U.S. to maintain a disproportionate share of NATO’s defense expenditures,” Tillerson said at a meeting of allied foreign ministers in Brussels.

Repeating what Trump told Angela Merkel during her US visit (when the US president reportedly handed the Chancellor an invoice for $375 billion for “overdue” NATO defense expenses) Tillerson said he wants member states of the North Atlantic Treaty Organization to agree at their summit in May to increase such spending by the end of the year or to make concrete plans to reach? 2% of gross domestic product by 2024—a target the Germans have contested.

What set off NATO ally anger however was Tillerson’s suggestion that the U.S. would prefer to micromanage the process, and wants to see annual milestones that would ensure the defense investment pledge? is implemented by the 2024 deadline, the WSJ reported.

NATO Foreign Ministers take part in a meeting at the Alliance’s headquarters

in Brussels, Belgium March 31, 2017. REUTERS/Yves Herman

Germany’s Foreign Minister Sigmar Gabriel was particularly incensed, acknowledging that while Germany should spend more, he said demands for spending 2% of GDP were “totally unrealistic.” To meet the U.S. target, he said, Germany would have to increase spending by some €35 billion ($37 billion).

Two percent would mean military expenses of some €70 billion. I don’t know any German politician who would claim that is reachable nor desirable,” Gabriel told the first meeting of NATO foreign ministers attended by Tillerson.

“The United States will realize it is better to talk about better spending instead of more spending,” he said, noting that humanitarian, development and economic aid to stabilize countries and regions should also count.

As the WSJ adds, Gabriel declined to answer questions about whether Germany intended to develop the kind of spending plans pushed by the U.S. Raising German military spending—now at about 1.2% of GDP—has long been seen by the U.S. as key to Europe shouldering more of its own defense.

Gabriel, a member of the left-leaning Social Democratic Party, has stepped up his criticism of further spending increases as September elections near, arguing that a strong defense isn’t enough to ensure security.


German Chancellor Angela Merkel, of the ruling Christian Democrats, has been more supportive of increased military spending than the SPD, who is a junior partner in her governing coalition.

Germany’s anger erupted first shortly after Trump’s meeting with Merkel earlier this month, when he made waves in Berlin by tweeting that “Germany owes…vast sums of money to NATO,” an accusation that roiled German officials.

Despite Germany’s rebuke, NATO Secretary-General Jens Stoltenberg embraced the push by the U.S. and said Europe must raise its spending and improve its military capabilities. “Increased military spending isn’t about pleasing the United States. It is about investing more in European security because it is important to Europe,” Stoltenberg said.

Stoltenberg noted that the U.S. has demonstrated its commitment, including by adding troops in Eastern Europe this year as part of a force meant to deter Russia. While Stoltenberg rejected Gabriel’s call to include non-military spending toward the goal, he said Germany was moving “in the right direction” with more military spending after years of cuts.

* * *

Meanwhile, Tillerson remained unswayed, and said allies will need to pay up or outline plans for meeting that target when NATO leaders meet on May 25 – the first NATO which will be attended by Trump himself. Trump has famously criticized NATO as “obsolete” and suggested Washington’s security guarantees for European allies could be conditional on them spending more on their own defense. He has also said he wants NATO to do more to fight terrorism.

“Our goal should be to agree at the May leaders meeting that by the end of the year all allies will have either met the pledge guidelines or will have developed plans that clearly articulate how…the pledge will be fulfilled,” Tillerson said.

U.S. defense expenditure makes up about 70 percent of the total NATO allies’ defense spending. Only four European NATO members – Estonia, Greece, Poland and Britain – meet the two-percent target.

While US demands for more money from NATO allies did not sit well with Germany, Tillerson did offer assurances of Washington’s commitment to NATO during his brief stop in Brussels, although U.S. officials said he did not have time for one-on-one meetings, which according to Reuters are customary during such gatherings. As previously reported, Tillerson’s initial decision to skip his first meeting with NATO foreign ministers while keeping his commitment for a trip to Russia, sparked a media frenzy added to questions about the Trump administration’s commitment. The meeting was later rescheduled and he attended on Friday.

“The United States is committed to ensuring NATO has the capabilities to support our collective defense,” Tillerson said. “We will uphold the agreements we have made to defend our allies.”

* * *

Finally, in keeping with the recent momentum of renewed deterioration in relations US-Russian relations, Tillerson said NATO was fundamental to countering Russian aggression in Ukraine. As Bloomberg reports, “Tillerson sought to assuage worries that the new administration would seek closer ties with Russia at NATO’s expense, particularly after Trump said during the 2016 presidential campaign that the alliance was “obsolete.”

“Let me be very clear at the outset of my remarks: the U.S. commitment to NATO is strong and this alliance remains the bedrock for trans-Atlantic security,” Tillerson said Friday in Brussels. “The NATO alliance is also fundamental to countering both nonviolent, but at times violent, Russian agitation and Russian aggression.”

He said U.S. sanctions on Russia for annexing Crimea “will remain until Moscow reverses the actions that triggered our sanctions” and “we will continue to hold Russia accountable.”

Defense Secretary James Mattis, a retired general known for his straight talk, was even more outspoken. At a briefing in London on Friday, he said Russia’s “violations of international law are now a matter of record — from what happened with Crimea to other aspects of their behavior in mucking around inside other people’s elections, that sort of thing.”


It was a blunt reference to Russia’s hacking and leaking of Democratic documents in last year’s American presidential election, a campaign that U.S. intelligence agencies found was aimed at hurting Trump’s rival Hillary Clinton and ultimately at helping him win.

Meanwhile, as relations between the Kremlin and the White House deteriorate with every passing day before Trump has even met with Putin, accusations that Trump is a puppet of the Kremlin remain the topic du jour across the US media.

via Tyler Durden

Colorado Governor Concedes Legal Marijuana Hasn’t Turned His State Into a Stoner Hellscape

Colorado Gov. John Hickenlooper didn’t want his residents to approve 2012’s ballot initiative legalizing recreational marijuana. But in a lengthy interview with The Denver Post‘s Alicia Wallace, the craft beer-brewing governor says the “worst nightmares” of legalization opponents “haven’t materialized.”

“We haven’t seen a spike in teenage use,” Hickenlooper told Wallace. “We haven’t seen a giant increase in people’s consumption of marijuana. Seems like the people who were using marijuana before it was legal, still are. Seems like the people who weren’t using marijuana before it was legal, still aren’t.”

Hickenlooper remains skeptical of his state’s success in taxing and regulating marijuana–he’s told other governors curious about legalizing marijuana, “I think they should still wait a year or two, maybe three years”–but he also appears committed to pushing back against any crackdown on legal weed by Attorney General Jeff Sessions and the Trump Justice Department:

Q: Colorado Attorney General Cynthia Coffman has invited Sessions to visit Colorado for a first-hand look at how the system operates here. If that were to happen, what would you say to him? What would you show him?

Hickenlooper: I think I would make the argument to Attorney General Sessions that I’d tell him, I opposed it. I thought this was too risky of an idea. No state wants to be in conflict with federal law, but our state passed this 55-45, our state supports it by more than 60-40 now. … I took an oath to uphold the Constitution of Colorado and I have an obligation to do everything I can to try and make this thing work.

Not exactly an emphatic defense of Colorado’s sovereignty, is it?

Hickenlooper also suggests to Wallace that he might veto two pending bills in the state legislature. One would legalize home delivery of marijuana products and the other would legalize the operation of membership-only clubs where people can publicly consume marijuana. His argument against the former is that delivery services may lead to underage consumption; his argument against the latter is that Amendment 64 was sold on the promise no one could consume in public, “[s]o I’m just trying to defend the will of the voters in that.”

But if teenage use hasn’t increased with legal pot retailing at $30 an ounce(!), I’d be curious to know exactly how couriers will dramatically alter the landscape. It’s also a bit odd to see Hickenlooper crow about the tax revenue from legal pot while denying out-of-state pot tourists a safe and legal place to consume their purchases. If consumers cannot legally consume marijuana in public or in their hotel rooms, and they also can’t join private clubs, are they supposed to pack it into their luggage and board a plane? Drive it across state lines? Head out to a federal park? None of those things are legal. And if Amendment 64 voters see the legalization of members-only pot clubs as a betrayal, they can vote in legislators to reverse it.

Here’s ReasonTV on Denver’s pot club crackdown, and why it’s a violation of free association:

from Hit & Run

The DEA Has Stolen $3.2 Billion from Americans Without Charges Since 2007

In my post published earlier this week, Recent TSA Molestation Video Proves Americans Have Become Authority Worshipping Slaves, I noted the following:

Yeah, it’s disgusting, inappropriate and anathema to a free people, but that’s the point. We aren’t a free people. We’ve become a bunch of authority-worshiping subjects toiling on a plantation dominated by multi-national companies who write our laws and manipulate our thoughts through corporate media. The worst part is we don’t do anything about it. We elect Trump and then puff our chests out yelling stupid slogans like MAGA, as molestations from the TSA get worse. Well done everyone.

I was pleased that the above paragraph connected with many people, but for those of you who think I was being hyperbolic, take a look at the following excerpts from a piece recently published at The Washington Post, Since 2007, the DEA Has Taken $3.2 Billion in Cash from People Not Charged with a Crime:

The Drug Enforcement Administration takes billions of dollars in cash from people who are never charged with criminal activity, according to a report issued today by the Justice Department’s Inspector General.

Since 2007, the report found, the DEA has seized more than $4 billion in cash from people suspected of involvement with the drug trade. But 81 percent of those seizures, totaling $3.2 billion, were conducted administratively, meaning no civil or criminal charges were brought against the owners of the cash and no judicial review of the seizures ever occurred.

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from Liberty Blitzkrieg